Page 29 - bne IntelliNews monthly magazine October 2024

bne October 2024 Cover story I 29
With a major war in its backyard and
the real possibility of a Nato conflict with Russia, scarce resources are being channelled away into the defence sector where the spending needs run into the hundreds of billions of euros, not to mention the ongoing drain on the EU and national budgets for supporting Ukraine’s war effort. Ukraine needs some €100bn a year of funding – two orders
of magnitude more than the EU was providing pre-war – which is increasingly being funded by the EU, as the US starts to back off. Russia, on the other hand, has put its whole economy on a war footing, is massively outproducing Europe and is preparing to rebuild its military. Draghi included a whole section on modernising Europe’s defence sector, which is a necessary security component to the economic prosperity plan.
“The world is heading into a period where foundational rules once taken for granted no longer apply. The EU urgently needs to emerge from its peace dividend softness and build a power model that allows it to shape new alliances and deter adversaries,” political analyst Rym Momtaz wrote in a recent paper for Carnegie Endowment for International Peace entitled “Europe’s Choice: Adapt or Atrophy.”
As bne IntelliNews reported, the lack of investment in infrastructure and technology in business is mirrored
by the chronic underinvestment in defence. Most of Europe is facing a serious materiel shortfall. Germany, in particular, will not be able to return to pre-war levels of armament for decades despite having earmarked a special €100bn in defence spending and formerly having one of the most powerful militaries on the Continent.
“Western Europe is at a particular disadvantage, having uniquely benefited, for nearly three generations, from a US-provided peace dividend, which exempted it from engaging in hard-power politics while allowing it to reap the rewards of global economic integration and cooperation,” said Momtaz.
A clear example of Europe’s military impotence was that in 2023 it promised
to manufacture and deliver over 1mn shells to Ukraine by March this year.
As bne IntelliNews reported, the EU
has been very slow to sign military procurement contracts with weapons makers. The result: less than 200,000 shells were produced by the deadline. Currently Russia is firing ten shells for every one Ukrainian shell in Pokrovsk at the epicentre of the current battle. For comparison, Russia has raised its shell production from 1.7mn rounds a year in 2022 to 2mn last year. And it has sourced an additional million shells from allies such as North Korea.
"Russia’s [military] is getting larger, and they're getting better than they were before. ... They are actually larger than they were when [the invasion] kicked off," Air Force General James Hecker told reporters at the Air & Space Forces Association's annual Air, Space & Cyber Conference on September 19.
Russia’s military is now estimated to
be 15% larger than it was at the start
of the war, while Ukraine is suffering from a chronic lack of men, money
and materiel. And on September 16, Putin ordered that the Russian army be expanded by 180,000 active-duty troops for a total of 1.5mn soldiers, making Russia's military the second largest in the world, behind China.
China is likewise investing heavily into its military and its navy is now larger than that of the US, as it adds the equivalent
to the French navy to its fleet every four years, among other things. And now China
is chasing the US submarine fleet, rapidly ramping up its submarine production.
Bankruptcy and recession
Europe is teetering on the verge of recession, while the Russian economy is booming – for now. That is sending more and more European companies into insolvency, as the economies adjust to a lower growth trajectory. Over the past three years the EU has seen a significant rise in bankruptcies, reaching record levels in 2023. What started in heavy industry becoming unprofitable has now spread to the lighter end of the industrial spectrum.
In 2023, EU bankruptcies surged for the sixth consecutive quarter, with an 8.4% increase in the second quarter compared to the previous quarter, reaching the highest level since data collection
began in 2015, reports the European Commission. The number of bankruptcy declarations at the end of 2023 was above the pre-pandemic period levels recorded between 2016 and 2019, although the pace of bankruptcies started to slow towards the end of 2023.
Notably, industries such as accommodation and food services, transportation and storage have been hit hard this year, with increases of up to 82.5% compared to pre-pandemic levels in 2019 across the EU.
Some of these bankruptcies are a result of the slowdown or high energy prices. Others are due to the growing competition from emerging markets,
Registrations of businesses and declarations of bankruptcies in the EU Q1 2015 - Q2 2023, seasonally adjusted data (2015=100)
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